What's behind the leap in Angie's List shares

Shares of Angie's List (ANGI) soared nearly 60 percent Wednesday after the company, best known as a platform for consumer reviews, posted earnings that surpassed Wall Street's expectations. The results countered long-running skepticism about the Indianapolis company's prospects.

Although Angie's List closed at $7.80, that's still well below its 52-week high of $15.17 and its 2011 IPO price of $16.26. Founded in 1995 by Angie Hicks with CEO Bill Oesterle, the company has been a favorite of short sellers (who sell borrowed shares in expectations the price will fall) because of concerns about its inability to generate consistent profits. Moreover, Angie's List competes against rivals such as IAC's (IAC) HomeAdvisor and Yelp (YELP), which provide similar services for free.

Those issues didn't seem matter much in the latest earnings.

Net income at Angie's List in the fourth quarter rose 445 percent to $15.3 million, or 26 cents per share, compared with $2.8 million, or 5 cents a share, a year earlier. Revenue surged 19 percent to $82.2 million, fueled by gains across all of its businesses.

The results topped analysts' forecasts for profit of 22 cents per share on revenue of $81.2 million. Total paid memberships rose 22 percent to 3.04 million and have tripled in the past three years. Angie's List has more than 100,000 members in both Boston and Chicago.

Naysayers may have overlooked the company's growth potential as it transitions to a marketplace business model, meaning instead of mostly focusing on gaining new members, Angie's List also offers a platform for people to hire providers, and it processes some transactions. The shift in strategy appears to be paying off.

"We expanded our marketing methods to include commerce, improve the logic use to display and present offers to consumers, and effectively moved the pay wall enabling nonmembers to shop first and then be presented with membership at checkout," said Hicks, the company's chief marketing officer, on the company's earnings conference call. "The objective was to take better advantage of the traffic to our site and open up our platform to a broader base of consumers."

During the most recent quarter, service provider revenue, which includes advertising sales and e-commerce, rose 26 percent to $64.1 million. As of Dec. 31, the site had 51,614 participating service providers, an increase of 11 percent from the previous year. Contract value rose by 28 percent, and Hicks said its emphasis on increasing the number of transactions will be "even stronger in 2015."

"Yes, rivals should be worried about ANGI," wrote Barrington Research analyst Jeff Houston in an email to CBS MoneyWatch. "Given the October 2014, Financial Times 'shopping itself' rumor, which management neither confirmed nor denied, we think that strategic buyers (e.g., Alibaba (BABA), eBay (EBAY), Google (GOOG), and Yelp) could be more interested given recent operational traction." Houston rates the stock as "outperform."

Angie's List forecast revenue in the current quarter of $357 million to $363 million. Analysts had expected $360 million. However, they also expect it to lose money in the next two quarters. Some analysts, such as Sean Milne, are taking a wait-and-see approach to the company's prospects. He has maintained his "neutral" rating on the stock.

"We believe ANGI is fully in "show me" mode to stop significant revenue deceleration while we continue to believe (long term) that ANGI value rests in the build out of Marketplace vs. its competition," he wrote in a note to clients. "ANGI is shifting sales force focus towards merchandising around the marketplace which is likely the right move longer term but depresses core growth near term."